Bicycle industry: Status, challenges and prospects

The bicycle and bicycle spares industry in a big scale is a recent development in the industrial domain of Bangladesh. According to a World Bank report Bangladesh: Diagnostic Trade Integration Study, 2013, the growth of this industry in the country is partially linked to developments in the European Union (EU) during the 1990s. Due to continuous lobbying by the European Bicycle Manufacturers Association in the backdrop of trade liberalisation, the EU in 1993 imposed anti-dumping duties of 30.8 per cent on bicycles manufactured and exported by China. This provided a fresh opportunity for both existing producers and new investors in other countries to enter the lucrative bicycle market of Europe (worth an estimated US$ 7.0 billion in 2011) through exports.
GENESIS AND GROWTH: Foreign direct investment (FDI) facilitated the emergence of bicycle export industry in Bangladesh. The Malaysian investors were first to set up a bicycle manufacturing-cum-exporting industry back in 1995. They established their new plant named 'Alita' in Chittagong EPZ with an investment outlay of US$ 2.0 million.
A local industrial group called 'Meghna' was the next to enter the fray as manufacturer and exporter of bicycles. The group had an experience of trading in bicycles and bicycle parts during the 1960s, produced bicycle spokes during the 1970s and assembled bicycles for the local market during the 1980s. The group then went on to become the largest manufacturer of bicycles and bicycle parts in the country during the 1990s. It now has two dedicated factories for the export market, two for the local market, and five factories for producing bicycle components. The Meghna group has recently launched a joint venture initiative with the famous Italian brand 'Selle Basano' to manufacture saddles and bags for bikers across the globe.
The third major entrant in the bicycle export industry of Bangladesh is the 'German Bangla Bicycles'. Established in 2009, it is a joint venture between a German firm named 'Panther' and a Bangladeshi company called 'Powertrade Engineering'. Like the other two firms, German Bangla Bicycles is also an original equipment manufacturer (OEM) mainly catering to the needs of European brands.
The latest major entrant in the field is the Bangladeshi conglomerate Pran RFL group.
Bicycle exporters from Bangladesh rely heavily on preferential market access to the European market resulting from the clamping of anti-dumping duties on Chinese exports. Slowdown in the European market has influenced and will continue to impact negatively on export levels and capacity utilisation in the sector.
Side by side with the export-oriented bicycle industry, Bangladesh also has a cottage industry of small-scale bicycle assemblers, parts manufacturers and retailers, which had its beginning during the 1970s (World Bank, 2013). The Bongshal market of Dhaka is the hub of this bicycle cottage industry in the country, employing about 2,000 people in businesses related to bicycle assembling, component manufacturing and retailing.
KEY FACTS AND FIGURES: Bicycles are the single largest export commodity in the engineering sector of Bangladesh. It accounts for 7.5 per cent of the total engineering exports. Bicycle export started in 1995 and since then it has grown gradually both in terms of volume and value. The industry is a large cluster comprising of a few large firms alongside a greater number of smaller firms. The industry offers certain advantages as production is not much energy-intensive and the potential linkages with other segments of the economy are substantial (World Bank, 2013).  
There is a high degree of concentration in the global bicycle output, as the top ten countries now account for about 92 per cent of global production value of the industry and the top three countries produce 75 per cent of the total. China is the top bicycle producer commanding 51.6 per cent (US$ 27.5 billion) of the global output followed by Indonesia and India, with 13.2 per cent (US$ 7.1 billion) and 12.4 per cent (US$ 6.6 billion) of total production respectively. The value of global bicycle output reached US$ 53.3 billion in 2011 and grew by 30.8 per cent between 2007 and 2011.
Demand for bicycles is growing fast in developed countries due to the current trend for environment-friendly transport system. In developing countries, it is flourishing due to public desire for an affordable transport in tandem with a rise in household incomes.
Earnings from exports of bicycles totalled US$ 6.6 billion (over 71 million units) in 2011-12. The top ten countries accounted for 82 per cent of total export value and 85 per cent of all units. China was the top exporter (44 per cent in terms of value and 79 per cent in terms of quantity), followed by the Netherlands (12 per cent of value) and Germany (7.6 per cent of value). China commanded the low-priced value space with an average unit export price of US$ 51.98, while the Netherlands and the United States targeted the up-market consumers with average per unit export prices of US$ 730 and US$ 550 respectively.
RECENT TRADE DATA FOR BANGLADESH: Bangladesh exported bicycles worth US$ 112.89 million during 2013-14 (Export Promotion Bureau, 2014), thereby earning for itself the tenth position in the global ranking of bicycle exporters. The export figure went up from around US$ 106 million in 2011-12 and 2012-13 fiscal years and US$ 111 million in 2009-10.
Bicycle exports from Bangladesh are concentrated mostly in three European markets, which accounted for 87 per cent of the market share in 2011-12. The top three destinations in 2011-12 were the United Kingdom (US$ 67 million or 64 per cent), Germany (US$ 15 million or 14 per cent), and Belgium (US$ 9.2 million or 8.7 per cent).  
VALUE-CHAIN ANALYSIS: As reported by the World Bank (Bangladesh: Diagnostic Trade Integration Study, 2013), the value-chain analysis of the bicycle industry in Bangladesh shows that the share of labour costs in the production of bicycles is quite low across the manufacturing stages. Direct labour costs associated with producing a bicycle range from US$ 3.0 to US$ 5.0 per bicycle, when all the stages of production are included.
Although labour costs are important, they have a relatively lower significance in determining the competitiveness of a bicycle product compared to other labour-intensive industries like ready-made garments (RMG). Bicycle manufacturing across all stages is somewhat capital-intensive.  
POLICY OPTIONS FOR IMPROVING COMPETITIVENESS: Economies of scale and precision engineering are vital elements in modern-day bicycle production. In the case of Bangladesh, modern export firms have integrated vertically to partially overcome the absence of modern parts supplying industry; but they rely on imports for the bulk of their needs. As a result, their export prices are currently 10-12 per cent higher than the export prices of China (World Bank, 2013).
The establishment of a modern parts and components industry would help stabilise the overall competitiveness of bicycle export industry in Bangladesh.
Ensuring better access to finance can help producers, including original equipment manufacturers (OEM), who are hampered or inconvenienced by dearth of financial backing. This should be complemented and supplemented through improved financial access for the SME (small and medium enterprise) industries as a whole.
Bicycle production for the domestic market in Bangladesh is highly protected. Increasing competition in the domestic market by lowering the domestic effective rate of protection would narrow the gap between these two markets and help reduce the anti-export bias (World Bank, 2013).
IMPACT OF BICYCLES ON POVERTY ALLEVIATION: Apart from its potential as an export item, wider use of bicycles in the country can make significant contributions to household economic uplift and green growth in rural areas.
Bicycles improve access to education, healthcare and economic opportunities by enhancing the carrying capacity and by reducing the time taken for commuting to and from schools, clinics or markets. Time saved can be utilised to enhance agricultural production or diversify into non-agricultural activities. As agriculture comprises 18 per cent of GDP (gross domestic product) and 45 per cent of employment in Bangladesh, increased use of bicycles in the rural areas can make positive contributions to enhance productivity in both agricultural and manufacturing sectors (World Bank, 2013).
MARKET DIVERSIFICATION: At present, the bicycle industry in Bangladesh relies heavily on the EU policies that support the export market, notably through imposing anti-dumping penalties on Chinese bicycle imports in EU countries. When these penalties expire in 2016, bicycles manufactured in Bangladesh will be hard-pressed to compete with the Chinese products.
Given the current Chinese advantages in cost, delivery lead time, and other factors, Bangladesh should urgently look for expanding its market beyond the European Union, while working hard to attract FDIs in the sector and remove impediments and bottlenecks standing on the way to higher productivity and efficiency.
The writer is a senior civil servant and former editor of Bangladesh Quarterly.
[email protected]